DBRS Confirms University of Guelph at A (high)

DBRS Limited (DBRS) confirmed the University of Guelph’s (Guelph or the University) Issuer Rating and Senior Unsecured Debt ratings at A (high). Both trends are Stable. The University’s credit profile remains well supported by its established academic profile, consistently strong operating results and considerable balance sheet flexibility.

The University reported a surplus of $89.8 million in 2016–17, which equates to $86.9 million on a recurring basis after excluding the impact of interest rate hedges. The University consistently reported strong results in recent years, although the 2016–17 result was somewhat stronger, reflecting the recovery in investment earnings and stronger-than-planned enrolment.

DBRS expects the University to report another healthy result in 2017–18. While the University prepared a balanced budget as in past years, DBRS understands the University is tracking, if not ahead of, to plan as a result of stronger-than-expected tuition and enrolment.

The medium-term outlook is now clearer than it was at the time of the last review. Much of the uncertainty around funding, tuition, the Ontario Ministry of Agriculture, Food and Rural Affairs contract, labour agreements and pensions has been resolved. Most fundamentally, Guelph, like other universities, will experience some budget pressure as a result of the new funding model. With stable provincial grant funding and modest flexibility to raise tuition fees, expense pressures are likely to outpace revenue growth, which will necessitate budget adjustments or smaller surpluses. Despite this, DBRS believes Guelph is relatively well positioned among Ontario universities. Guelph ran relatively large surpluses in recent years and set aside reserves. Its program offerings/capacity appear aligned with the changing student demand.

The outlook for the University’s debt burden continues to track expectations. Debt rose in 2016–17 with the issuance of $40 million in banker’s acceptances (BAs) to fund a number of capital projects. However, with ample balance sheet flexibility and $60 million in BAs maturing over the next five years, debt should steadily fall. DBRS projects debt per full-time equivalent to fall toward $8,900 in 2019–20 from about $10,100 in 2017–18.

The major element of uncertainty on the horizon is the University’s pension plans. Considerable going concern and solvency deficits could necessitate large special payments in the coming years under the new pension funding framework. However, Guelph is working with two other universities toward the creation of a multi-employer jointly sponsored pension plan (JSPP), which would relieve the University from the more onerous funding requirements. DBRS understands that considerable progress has been made in designing the plan and that the universities are working toward a July 2019 launch.

A negative rating action is unlikely, given the steady improvements in the University’s financial profile. A positive rating action could occur with continued improvement in the University’s financial risk factors and resolution of the its pension challenges.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public Universities, which can be found on dbrs.com under Methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.